Blackstone (Finally) Reaches The Finish Line

During a media call earlier today, Blackstone Group president Tony James said that the firm has held a $13.5 billion final close on its latest buyout fund. Had I been making the announcement, the word “finally” probably would have been added.

This is the fund that Blackstone originally began raising with a $20 billion target in October 2007, long before most Americans had ever heard of credit default swaps or “President” Obama. It held a belated first close on just over $7 billion the following August (i.e., two years ago), cut the target to $15 billion and then hit a long dry patch. Somewhere along the way, James said that the fund would still reached “well into the teens.” 

Blackstone had around $9 billion as of earlier this year, set a June 30 deadline, missed the deadline and then persuaded a bunch of fence-sitters at the last moment. Some have speculated that the carrots were sweetened fees, but James said today that there were no substantial term changes made between the first and final close (perhaps because it would have introduced “most favored nation” complications?).

All of the above chronology is why I wrote in January that Blackstone would raise the year’s largest and most underwhelming fund. I mostly stand by that, considering that it basically took Blackstone two years to secure the final $6 billion. My hedge relates to the fact that LP sources told me in May that the final close probably wouldn’t top $12 billion (i.e., they surpassed my lowered expecations).

Of course, none of that much matters at this point. Blackstone is again one of the best-capitalized private equity firms in the world. In fact, it may be the best-capitalized, considering that it still has around $3 billion of dry powder left its $21.7 billion fifth fund. That last point is important, because it means Blackstone can delay tough decisions about staffing levels (considering that, eventually, fund management fee income will be slashed nearly in half)…

In terms of strategy, James said to expect two differences between Fund V and Fund VI. First up is geography: Fund V began with a strong push into Europe, then focused on North America with a late push into Asia and other emerging markets. Expect the reverse order this time around.

Second, James said to expect far fewer multi-billion dollar privatizations. This is part of Blackstone’s year-long effort to rebrand as a mid-market firm, which it keeps selling even though no one is buying (nor should they).

As an aside, this close does put a bit of pressure on rival firm KKR, which plans to begin marketing its new fund later this year. The situations aren’t identical — Blackstone raises global funds, whereas KKR also has European and Asian funds — but I’d think KKR needs to secure at least $8 billion or so to keep pace. Methinks they’re already trying to find out where Blackstone’s last few billion came from…